NEW YORK – Americans could soon see gasoline prices top US$4 a gallon again as renewed hostilities between the United States and Iran drive energy prices higher by paralysing traffic through the Strait of Hormuz, a critical route for global oil supplies.
The national average price of gasoline on July 14 stood at US$3.84 a gallon, a 26 per cent jump from a week ago, data from fuel price tracker GasBuddy showed. Gasoline prices are up 22.2 per cent year-on-year.
High pump prices have become a political headache for US President Donald Trump and his Republican Party, which will soon be campaigning to hold onto thin majorities in the US Congress in November midterm elections.
The US$4 per gallon mark, a price point of financial pain for many consumers, was last crossed in late March, after Iran blocked the Strait of Hormuz. Prices eased below that threshold in June after the US and Iran signed a memorandum of understanding to end the war.
A return to that level would add pressure on households already squeezed by inflation.
Prices of gasoline have surged alongside crude oil following the collapse of the truce between Washington and Tehran last week and reimposition of a US naval blockade on Iran. Retail fuel prices and crude oil typically move in the same direction because crude feedstock is the dominant cost for producing the fuel. The number of tankers transiting the Strait of Hormuz fell in the past day to the lowest level in two months, shipping data showed on July 13.
Before the Iran war about 20 per cent of global oil supplies flowed through the strait. Higher fuel prices have also been supported by the loss of Russian refining capacity due to Ukraine intensifying systematic attacks on energy infrastructure.
“I now expect the national average price of gasoline to reach US$4 per gallon in the next 7-10 days, if not sooner, while the US average diesel price is likely to again reach US$5 per gallon by the end of this week, potentially as soon as Friday,” GasBuddy analyst Patrick De Haan wrote in a blog post on July 13.
Drivers in some states could see prices rise above the US$4 a gallon mark sooner than that, De Haan added.
Rekindling inflation fears
Higher fuel costs could complicate the US inflation outlook after price pressures eased more than expected in June as energy prices retreated. “While June’s inflation data reflected easing price pressures largely due to lower energy costs, a sustained increase in gasoline prices throughout July could quickly alter that narrative,” said Simon-Peter Massabni, head of business development at XS.com.
“The impact extends beyond fuel itself. Higher gasoline prices feed into transportation costs, freight rates, and broader logistics expenses, which eventually pass through to the prices of goods and services across the economy,” Massabni said.
If the hostilities boil over and the Strait remains more or less closed for a few weeks, already extraordinarily low global oil inventories will be further depleted, Mark Zandi, chief economist at Moody’s Analytics, said in an email.
In that scenario, prices for oil, gasoline and other forms of energy will spike, and physical supply shortages will emerge across the globe. REUTERS
